David Thomas, General Manager of Helioscreen, a 25 year old Sydney based company, has been fighting a no win battle against cheap and inferior quality blinds and window coverings imported from China for almost a decade. Like most manufacturers in Australia he is faced with a trifecta of challenges that make it impossible to compete with these imported products. Wage costs in Australia are 10 times higher than in manufacturing powerhouses like China and Vietnam, there is increasingly upward adjustments to fixed overheads of rent and electricity where utility costs have more than doubled in recent years and the strong Australian Dollar has made imported products even cheaper than they would normally have been, resulting in consumers becoming conditioned to demand cheap, off the shelf products.
As Thomas says: “We see our future in doing things others can’t do as there are many basic parts of our business that can be copied and replicated by lower cost based manufacturers or importers, so competition will only become greater and survival more difficult. We have invested in expensive machinery able to bond fabrics together and produce a superior product than traditional sewing methods for our folding arm awnings which has resulted in a 50% increase in the amount of folding arm awnings we sold in the last summer season. Best components combined with best fabrics gives us that point of difference.”
For the past decade, manufacturing in Australia has been buckling under the weight of a tsunami of cheap and mostly inferior imported products primarily from China, which has conditioned consumers to being ultra-price conscious. In addition, recent strengthening of the Australian Dollar to above parity against the US dollar has compounded the pain inflicted on an already struggling sector. Entire industries have been forced out of business and large scale job losses have occurred in many areas.
Manufacturers that have survived the changed landscape have only done so through large scale cutbacks and increased investment in technology and efficiency drives. A recent Work and Organisation Study by the University of Sydney confirms the challenges facing Australian Manufacturing: “The future of the manufacturing industry is problematic. It’s difficult because it lies in being a global economic industry and what is going to make it successful is increased technology and R&D so we can capture bigger markets. Our future lies in linkages with overseas markets and overseas suppliers and that’s a very complex mosaic and as we know there’s a massive manufacturing oversupply around the world. Investment in IT technology in Australia has been one of the mainstays that has given us strength over the past 4-5 years and it has probably been the issue along with microeconomics. There have been two big drivers – productivity which has been stellar, but the future has to be that we just don’t do R&D into existing technology. We’ve actually got to look at using new technology in a better way.”
To stay in the game, Thomas and Helioscreen have had to shift their focus to the premium, made to measure end of the market where cheap standard size products are unable to compete at this stage. As Thomas says: “Imported product, like what is sold at major retailers is all standard sizes. There is a bit of push to overseas made to measure product, but quality levels and mistake rates are still high.
From an economic point of view you could have it made in China and air freighted for half the price we can make it but retailers have not yet decided to go with that option. If they have to go and visit a customer 2 or 3 times because the product doesn’t fit, all the savings made will be wiped out, plus there will be the reputational damage to deal with from dissatisfied customers. However, if anyone gets it fully right and can get rid of the mistakes they will be dangerous in this market.”
Australian manufacturing is clearly at a crossroads. To survive, an organisation not only has to be good at what it does and produce quality product, it also must be innovative and flexible enough to rapidly respond to changes in the environment. The high Australian dollar demands that products either be made cheaper or be better in their function, design or quality and that this message is communicated effectively to the buying public. Whether Australia can maintain its manufacturing industry or watch its further gradual decline depends on how well the industry responds to these challenges. For more information visit: http://www.helioscreen.com.au.